CNPC Intends to Spin off Coalbed Methane Business in CUCMC      

Sun Maoyuan, Chairman of China United Coalbed Methane Co., Ltd. (CUCMC), said on July 10th, China National Petroleum Corporation (CNPC) will sell the 50% equity it holds in CUCMC. "China United Coalbed Methane Co., Ltd. will not change its name," said Mr. Sun, "Only equity ownership has some changes."
   Who will purchase that 50% equity? Sun did not disclose the information. But he says the work on equity ownership transfer is in progress today.
   CUCMC is set up in May 1996, between CNPC (50%) and China National Coal Group Corporation (50%). The company is engaged in the prospecting, development, production, transmission, sales and utilization of coalbed methane. It also has the exclusive right to cooperate with foreign companies in the prospecting, development and production of coalbed methane. Due to the 50% equity ownership, neither side can totally control the joint venture.
   CNPC has devoted itself to the oil business and also made efforts to expand natural gas and coalbed methane businesses. Oil and natural gas business are regarded as the core by CNPC whereas the input and return for the coalbed methane business are very small.
   CUCMC plans to increase an investment in coalbed methane business and promote the coalbed methane liquefaction project. It will put RMB1.0 billion in coalbed methane business in 2008. The company plans to increase the capacity of surface coalbed methane to 2.9 billion m3/a and the annual output to 1.9 billion m3 by 2010.
   CUCMC also plans to construct coalbed methane transmission pipelines. By 2010 the company will complete four coalbed methane transmission pipelines with a total length of 675 kilometers and a total design transmitting capacity of 2.2 billion m3/a.
   The progress in cooperation with foreign companies is however not very satisfactory. Foreign investors have found the development of coalbed methane in China is quite difficult, so they have given up attempts.
   In January 2008 CUCMC hopes to cooperate with foreign investors so as to accelerate the development of coalbed methane.
   After selling its equity in CUCM, CNPC intends to alone do the coalbed methane business. When PetroChina Company Ltd. got listed in the domestic stock market in 2007, a senior executive from PetroChina said that the development of coalbed methane would be one of the businesses in PetroChina. It is however still uncertain whether CNPC will put all the coalbed methane tracts in the listed company.
   According to experts, the advantage for CNPC to quit from CUCMC and do the business alone is that CNPC has already owned some coalbed methane tracts, has the west-east gas transmission pipeline and is stronger in financial standing.
   In 2007 China revised the regulations on cooperation with foreign companies in the recovery of onshore resources. Besides CUCMC, other companies will also be approved to have the exclusive right to cooperate with foreign investors. The monopoly of CUCM in coalbed methane will be broken.
   Although the Chinese government has not yet approved any company to have the exclusive right to cooperate with foreign companies in coalbed methane business, large energy firms such as CNPC have a possibility expectation to get such a right.
   CNPC has registered the coalbed methane mining right for some tracts in Shanxi province. The company started to construct the first coalbed methane pipeline in China in June 2008. The pipeline has a total length of 35 kilometers and has a gas transmitting capacity of 3.0 billion m3/a. The pipeline can connect locations of coalbed methane resources with the west-east gas transmission pipeline. (CCR2008 No. 19)